Under Attack, Gensler Defends Derivatives Rules

Yuri Gripas/ReutersGary Gensler, the C.F.T.C.’s chairman, sparred with Congressional Republicans over the need to regulate the derivatives industry.

Gary Gensler, under fierce questioning from Congressional Republicans on Thursday, defended his plans to regulate the derivatives industry.

Mr. Gensler, chairman of the Commodity Futures Trading Commission, reminded Republicans that derivatives were at the center of the financial crisis. Under the Dodd-Frank financial regulatory law, enacted a year ago Thursday, his agency gained broad new powers to overhaul the $600 trillion market.

“On this anniversary, it is important to remember why the law’s derivatives reforms are necessary,” he told the House Agriculture Committee. “Though the crisis had many causes, it is clear that the derivatives or swaps market played a central role.”

But Representative Frank Lucas of Oklahoma, the Republican chairman of the committee, complained that the agency’s new rules could become “overly burdensome” and “counterproductive.” He said many nonfinancial companies were concerned the new rules would eat into their bottom lines.

“I hope you’ve been listening,” Mr. Lucas said to Mr. Gensler.

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Over the last several months, Mr. Gensler’s agency is scrambling to write some 50 new rules for derivatives. Under pressure from Mr. Lucas and other lawmakers, the C.F.T.C. recently decided to postpone some regulations for up to six months.

The rules require companies to trade most derivatives contracts through regulated exchanges or a new creation known as a swap execution facility. Under the Dodd-Frank Act, most derivatives deals must also go through clearinghouses, which act as a backstop in case one party defaults.

“Frankly, I don’t believe anyone in this administration can provide an honest assessment of what the cumulative impact of these regulations will be,” Mr. Lucas said at the hearing. “With unemployment stagnating at more than 9 percent, we need greater accountability from you, Chairman Gensler, and from the administration, that you at least have a handle on the impact these regulations will have on our economy and the functioning of our financial markets.”

Mr. Gensler pushed back, saying the new rules would actually protect the economy. “Each part of our nation’s economy relies on a well-functioning derivatives marketplace,” he said in prepared testimony.

Derivatives, he said, added leverage to the system and fed the housing bubble before the crisis. “They contributed to a system where large financial institutions were thought to be not only too big to fail, but too interconnected to fail,” Mr. Gensler said.